CHAPTER IV
LAND ACQUISITION AND COMPENSATION
4.1 Introduction
This chapter deals with the concept of compensation, rights of land owners and persons
interested. The chapter especially focusses on right to compensation under the Indian
Constitution. The chapter also deals with valuation and calculations of market value of
land, buildings and attached properties for the purposes of land acquisition.
4.2 Land Acquisition & Compensation
There was a lot of controversy about the payment of compensation in the cases of
acquisition under Art. 31 (2) before and after IV amendment of the Constitution. The
main controversy was whether the compensation should be paid for all kinds of
deprivation of property or only where property was requisitioned or actually acquired?
Though the controversy was not of much relevance after the 17th amendment of Art.
31A by adding second proviso in which the word acquisition was used. The view taken
by the Supreme Court in various decisions is briefly discussed hereinafter.
In order to understand the extent and scope of Art. 31 (2) it is necessary to set out the
provisions of Article before and after the amendment.
"No property, movable or immovable.....shall be taken possession
of or acquired for public purposes under any law authorising the taking of
such possession...... unless the law provides for compensation for the
property taken possession of .... and either fixes the amount of the
compensation of specifies the principles on which and the manner in
which the compensation is to be determined and given.”
As far back as in 1950 Mukherjea J. gave the meaning of “acquisition” in Charanjut Lai
Choudhary v. Union of India18 as follows; “Acquisition means and implies the
acquiring of the entire title of the ex-appropriated owner, whatever the nature and extent
of that title might be. The entire bundle of rights which were vested in the original
holder would pass on acquisition to the acquirer leaving nothing in the form”. But in the
State of West Bengal v. Subodh Gopal Bose19 the majority Judges took the view that
clauses (1) and (2) of Art. 31 were not mutually exclusive in scope and content but
should read together and understood as dealing with the same subject. Thus a wider
18
19
AIR 1950 SC 41
AIR 1954 SC 92.
Chapter IV Land Acquisition and Compensation | 61
meaning was given to acquisition, deprivation contemplated in clause (1) of Art. 31
being no other than the acquisition or taking possession of the property referred to in
clause (2) of Art. 31. In Dwarakdas Srinivas of Bombay v. The Sholapur Spinning &
Weaving Co. Ltd.,20 the Supreme Court, while confirming the above view held that the
word “acquisition” had quite a wide concept, meaning the procuring of property or
taking of it permanently or temporarily and it was not confined only to the acquisition
of a legal title, by the State in the property taken possession of.
The above said view was followed in Sagir Ahmed v. State of U.P.21 as the AdvocateGeneral conceded to that affect. After a faint attempt to raise this question again in
Deepchand v. State of U. P.
22
. The Advocate-General could not support his argument
against to the view taken in Sagir Ahmed’s case21.
By IV amendment23 of the Constitution clause (2) of Art. 31 was amended by inserting
(2A) in that Article. The amendments, in so far as they are relevant to the present
purpose, substitute in place of the words “taken possession of or acquired” the words
“compulsorily acquired or requisitioned” and provide an explanation of the words
“acquired” and requisitioned in clause (2A). It is therefore held in Union of India v.
Sudhansu24 that after the amendment in order to constitute acquisition or requisitioning
there must be transfer of the ownership or right to possession of any property to the
State or the Corporation owned or controlled by the State.
4.3 Seventeenth Amendment
The above discussions is by no means irrelevant even after the Seventeenth amendment
of Art. 31 A. The seventeenth amendment of the Constitution made important changes
in the definition of ‘Estates’ in Art. 31A (2), in order to include the protection of Art.
31A (1). The amended Article 31A proviso 2 uses the word acquisition and lays down
that compensation not less than the market value will be paid, if the land of a person
under ceiling limit was acquired. In two recent cases25 the question was whether a
scheme providing pooling of small bits of land into common land of the village
amounts to acquisition by the State and hits the 2nd proviso of Art. 31 A. The scheme
which was sought to be quashed in Azit Singh's case
24
which was made under the
provisions of East Punjab Holdings Act, 1948. The State acting under the provisions of
20
AIR 1954 SC 119.
AIR 1954 SC 728 at
22
AIR 1959 SC 648
23
The Constitution of India (4th Amendment) Act, 1955
24
AIR 1971 S.C.
25
Azit Singh v State of Punjab AIR 1967 SC 856 and Pritan Sing v State AIR 1967 SC 930.
21
Chapter IV Land Acquisition and Compensation | 62
the Act had sought to reserve some of the land from “the common pool of the village”
to be vested it in the proprietary body (the co-owners of the village, who would include
the owners whose lands were being taken for this purpose), but put it under the management of the village Panchayat which was to use it for the common purpose of the
village. One question to be decided in that case was whether the appellant who was a
small land-holder holding land within the ceiling and had lost some of it, was entitled to
compensation at the market rate as required by the second proviso to Art. 31 A. The
majority of Judges, on the particular facts of the case came to the conclusion that there
was no acquisition by state. Here the formal title was left in the body of Co-proprietors;
but the management was handed over to the village panchayat and so the majority felt
that the beneficiary of the modification of rights was not the state. Justice Hidayatullah
(with whom Justice Shelet joined) dissenting from the majority view opined that the
word acquisition must denote not only the acquisition of ownership, that is to say, the
entire bundle of rights but also acquisition of some rights particularly an acquisition
which leaves the person an owner in name only. The majority opinion was also based
on the Justice Wanchoo’s observations in Attarsingh v. State of U.P.26 with respect to
small bits of lands. That was a case under similar, provision in a similar Act U.P.
Consolidation of Holdings Act, 1954 wherein small bits of land acquired from tenureholders were consolidated and used for common purposes directly useful for the tenureholders. Justice Wanchoo speaking for the Court said that the land which was taken
over was a small bit, which sold by itself would hardly fetch anything.
The minority in Azit Singh’s case reacted to this notion by saying that, what is a small
bit is a very vague and uncertain expression. The safe rule is that the Constitution
means what it says, that is, land within the ceiling is not to be touched unless
compensation at market rate is given27.”
In the case of Bhagat Ram v. State of Punjab28 the facts involved were somewhat
different, where the land was reserved for the income of the Panchayat, the Supreme
Court held that the beneficiary is the Panchayat which falls within the definition of
“State’ under Art. 12 of the Constitution and in accordance with the opinion of majority
the State was directed to modify the scheme in accordance with the Second Proviso.
Justice Hidayatullah & Shelet felt that the ceiling fixed by law is not to be reduced by
26
AIR 1959 SC 564, 568.
AIR 1967 SC867.
28
AIR 1967 SC 937.
27
Chapter IV Land Acquisition and Compensation | 63
an acquisition by the state unless compensation at market rate is paid and no other
compensatory factor can be taken note of under the second proviso. Thus gave a
declaration leaving the party to demand compensation if the land is reduced below the
ceiling.
If the minority view in Azit Singh's case24 is to be accepted will it be possible to
implement the rural reform scheme basing on the Co-operative System?
4.4 “Compensation” Before and After IV Amendment
The expression “compensation” according to the Supreme Court in Bela Banerjee v.
State of West Bengal
29
meant a just equivalent or full indemnification of the ex-
appropriated owner, and the expression “deprived” had the same connotation as taking
possession of or acquisition. In this case property was acquired in the City of Calcutta
for the settlement of refugees from East Bengal and was handed over to a Co-operative
Credit Society to develop. In accordance with Sec. 8 of the West Bengal Planning and
Development Act, 1948 the Society paid compensation. Sec. 8 laid down that
compensation be fixed with reference to the market value on an anterior date i.e., Dec.
31, 1946. Chief Justice Pathanjali Sastri delivered the judgment of the Court and
observed:
“No matter when the land is acquired, considering that the
impugned Act is a permanent enactment and land may be acquired under
it many years after it came into force, the fixing of the market value on
31st Dec., 1946, as the ceiling on compensation without reference to the
value of the land at the time of acquisition is arbitrary and cannot be
regarded as due compliance in letter spirit with the requirement of Art.
31 (2)....... Any principle for determining compensation which denies to
the owner this increment in value cannot result in the ascertainment of
the true equivalent of the land appropriated”30.
According to State of West Bengal v. Subodh Gopal Bose
31
the law providing for
acquisition or extension of interest of private owners in properties not governed by Art.
31A & 31B read with IX Schedule was liable to be struck down unless the law provided
for payment to the ex-appropriated owner compensation which was a just equivalent.
29
AIR 1954 SC 170.
Ibid. p. 8.
31
AIR 1954 SC 92
30
Chapter IV Land Acquisition and Compensation | 64
As a result of these two decisions, the IV amendment of the Constitution32 was passed
which came into force on April 27, 1955. Clause (2) of Art. 31 was substituted by new
clause (2) and (2A). Art 31A was amended with retrospective effect; seven more Acts
were added to the IX Schedule and certain consequential provisions were made by
substitution of an amended Article 305 in place of the original Article 305.
The following clause was added to Art. 31 (2):
“......no such law (i.e., which fixed the compensation or lays down the principles
on which it is to be determined) shall be called in question in any Court on the ground
that the compensation provided by law was not adequate”.
But the amendments were not given any retrospective operation and as a result of which
that in cases, where acquisition was made pursuant to the statute, enacted before April,
27, 1955 the law declared in Mrs. Bala Benerjee’s case continued to apply. In the 'three
cases State of Madras v. D. Namasivaya Mudaliar33. N. B. Jeejeeboy v. Asst. Collector,
Thana Prant34 and Union of India v. Kamalabai Hariji Wandas Parekh35 the Supreme
Court followed the principles laid down in Mrs. Bela Banerjee’s case36 as the impugned
enactments in all the three cases were passed before the Constitution IV Amendment
Act 1955.
It is to be noted by the Constitutional Seventh Amendment Act, 1956, which came into
force on November 1, 1956, Entries 33 of List I and 36 of List II were deleted from the
Seventh Schedule and Entry 42 of List II was amended as follows:
“Acquisition or requisitioning of property”. This was done, with a view to
availing technical difficulties in respect of acquisition, and requisitioning of property.
The effect of the amendment was that the power of acquisition and requisitioning of
property falls in the concurrent list and it made no reference to the principles on which
compensation for acquisition or requisitioning is to be determined37.
The true effect of the amended Article 31(2) came for consideration for the first time
before the Supreme Court in P. Vajravelu Mudaliar v. Spl. Deputy Collector, Madras38.
In this case lands belonging to a person were notified for acquisition for the purpose of
housing schemes and proceedings in respect of compensation payable to him in
32.
Inserted by Sec. I of the Fourth Amendment Act, 1955.
AIR 1965 SC 190.
34
AIR 1965 SC 1096.
35
AIR 1968 SC 377.
36
AIR 1954 SC 170.
37
State of Gujarat v Shantilal AIR 1969 SC 634 650.
38
P. Vajravelu Mudaliar v Spl. Deputy Collector, Madras AIR 1965 SC 1017
33
Chapter IV Land Acquisition and Compensation | 65
accordance with the provisions of The Land Acquisition (Madras Amendment) Act,
1961 were pending. The owner challenged the vires of the Madras Amendment Act,
1961 on the ground that the Act infringed the fundamental rights under Art. 14, 19 and
31 (2) of the Constitution. The Amended Act made provisions which departed from the
Land Acquisition Act, 1894 in determining compensation in three respects;
(1) Compensation was to be determined on the basis of the average market value of the
land during five years immediately preceding the date of the notification under Sec. 4
(1) of the Land Acquisition Act or the market value on the date of notification
whichever was less;
(2) the solatium payable to the owner for compulsory acquisition was to be 5 per cent
of the market value; and
(3) that the owner was not to get any compensation for the suitability of the land for
use other than the use which it was put on the date of publication of the notification i.e.,
potentiality of the land was to be discarded.
The Supreme Court held that in making the threefold modification in the application of
the Land Acquisition Act for determining compensation payable, the Statute did not
infringe the guarantee contained in Art. 31 (2). It only, specifically fixed certain
principles for determination of compensation. These principles may result in
inadequacy of compensation but did not constitute fraud on power and therefore the
amending Act did not offend Art. 31 (2) of the Constitution. But Subbarao J., delivering
the judgment of the Court relying upon a principle of Construction in Cases on Statute
law observed:
“The fact that Parliament used the same expression, namely, “compensation”
and ‘principles” as were found in Act. 31 before the Amendment is a clear indication
that it accepted the meaning given by this Court to those expressions in Mrs. Bela
Banerjee’s case39. It follows that a Legislature in making a law of acquisition or
requisition shall provide for a just equivalent of what the owner has been deprived of or
specify the principles for the purpose of ascertaining the- “just Equivalent” of what the
owner has been deprived of. If Parliament intended to enable a Legislature to make such
a law without providing for compensation so defined, it would have used other
expressions like “price”, “consideration” etc.40.”
It was further observed:
39
AIR 1954 SC 170.
P. Vajravelu Mudaliar v Spl. Deputy Collector, Madras AIR 1965 SC 1017.
40
Chapter IV Land Acquisition and Compensation | 66
“It will be noticed that the law of acquisition or requisition is not wholly
immune from scrutiny by the Court. But what is excluded from the Court’s jurisdiction
is that the said law cannot be questioned on the ground that the compensation provided
by that law is not adequate. It will further be noted that the clause excluding the
jurisdiction of the Court also used the word “compensation'’ indicating thereby that,
what is excluded from the court’s jurisdiction is the adequacy of the compensation fixed
by the Legislature. The argument that the word “compensation” means a just equivalent
for the property acquired and, therefore, the court can ascertain whether it is a “just
equivalent” or not, makes the amendment of the Constitution nugatory. It will be
arguing in a circle. Therefore, a more reasonable interpretation is that neither the
principles prescribing the “just equivalent” nor the “just equivalent” can be questioned
by the Court on the ground of the inadequacy of the compensation fixed or arrived at by
the working of the principles41.”
The legal position was summarised thus, “If the question pertains to the adequacy of
compensation, it is not justiciable; if the compensation fixed or the principles evolved
for fixing it disclose that the legislature made the law in fraud of powers in the sense we
have explained, the question is within the jurisdiction of the Court42.”
Ultimately the Supreme Court declared the law invalid, on the ground that the amended
Act was inconsistent with Art. 14, because it provided different standards of
compensation from the original Land Acquisition Act, 1884.
The next case was that of Union of India v. Metal Corporation Ltd.43 in which the
validity of Metal Corporation of India (Acquisition of Undertaking) Act, 1965, was
challenged and the same was held to be void, as the Act contravened Art. 31 (2). The
Court observed that two principles laid down in clause (b) of paragraph II of the
Schedule to the Act:(1) that compensation was to be equally equated to the cost price in
the case of unused machinery in good condition, and (2) written down value as
understood in the income-tax law was to be the value of the used machinery, were
irrelevant to the fixation of the value of the machinery as on the date of acquisition'’44.
Now we have to consider the Bank Nationalisation case45 which was decided on
February, 2, 1970. First the Banking Companies (Acquisition and Transfer of
41
Supranote 40 p. 1024.
Ibid.
43
AIR 1967 SC 637.
44
Ibid Page 652
45
R. C. Cooper v Union of India A.I.R 1970 S.C. 564.
42
Chapter IV Land Acquisition and Compensation | 67
Undertakings) Ordinance 1969 was promulgated on July, 19, 1959 and by an Act 22 of
1969 which was given retrospective effect from July 19, 1969 replaced the ordinance.
Under the Act fourteen Indian Scheduled Banks, with deposits exceeding Rs. 50 crores
were nationalised. The Act laid down principles for determining compensation to be
paid for the acquisition of the Banks. The case came up for hearing before 11 Judges
and two Judgments were delivered. By a leading majority judgment 10: 1 Justice Shah
declared that the impugned Act is void and by a dissenting judgment Justice Ray held
the Act as valid.
i.
The following principles emerge from the Bank Nationalisation case:The
Constitution guarantees a right to compensation an equivalent in money of the
property compulsorily acquired. That is the basic guarantee. The law must
therefore provide compensation, and for determining compensation relevant
principles must be specified; if the principles are not relevant the ultimate value
determined is not compensation46.
ii.
Compensation may be provided under a Statute, otherwise than in the form
of money: it may be given as equivalent of money e.g., a bond. But in judging
whether the law provides for compensation, the money value at the date of
expropriation of what is given as compensation, must be considered. If the rate
of interest compared with the ruling commercial rate is low, it will reduce the
present value of the bond. The Constitution guarantees a right to compensation
an equivalent of the property expropriated and the right to compensation cannot
be converted into a loan on terms which did not fairly compare with the
prevailing commercial terms. If the Statute in providing for compensation
devises a scheme for payment of compensation by giving it in the form of
bonds, and the present value of what is determined to be given is thereby
substantially reduced, the Statute impairs the guarantee of compensation47.
iii.
If the principles specified by the Parliament for determining compensation of
the property to be acquired is conclusive, the Parliament would be invested with
a charter of arbitrariness and by abuse of legislative process the Constitutional
guarantee of the right to compensation may be severely impaired 48. Justice Shah
went further and gave an independent reasoning basing Art. 19 (1) (g) because
46
Supranote 45
Ibid p. 564.
48
Ibid. p. 609.
47
Chapter IV Land Acquisition and Compensation | 68
the companies, whose undertakings were acquired, were not left in a position to
undertake other business, if they so liked and held that this virtual prohibition of
non-banking business, was an unreasonable restriction upon the Company share
holders’ rights under Art. 19 (1) (g), which the impugned statute could not
impose, while acquiring the banking business and undertakings of the
Companies specified in the Statute.
“If the compensation paid is in such a form that it is not immediately available for
restarting any business, declaration of the right to carry on business other than banking
becomes an empty formality, when the entire undertaking of the named banks is transferred to and vests in the new banks together with the premises and the names of the
banks, and the named banks are deprived of the services of its administrative and other
staff”49.
The judgment in the Bank Nationalisation case evidently lead to 25th Amendment of the
Constitution of India and by which Art. 31 (2) was amended by substituting the
expression “amount” for the expression “Compensation” which has been subjected to
conflicting interpretations by the Supreme Court' in different cases since 1951. In
addition the 25th amendment inserted a new Art. 31C after Article 31B and thus
brought a radical change on the interrelationship between the fundamental rights and
directive principles of State policy. Under this Article for the first time in the history of
our Constitution a Directive principle was placed above fundamental rights.
4.5 The Constitution (Twenty-Fifth Amendment)
The Constitution (Twenty-fifth Amendment) Act, 1971, has generated mixed feelings in
the country. Official comments have bordered on eulogy. When the Amendment Bill
was being debated in the Lok Sabha, Sri H. R. Gokhale, Law Minister, characterised it
as a “historic step forward for fulfilling, the social objectives” while the, Prime
Minister, Smt. Indira Gandhi, made a more sober assessment by calling it “a little step
forward which will take us in the right direction”. Sri Siddhartha Shankar Ray, at that
time Minister of Education, described it as “constitutionally correct, politically proper,
economically essential and normally just”. The Amendment Bill was voted by a
massive majority and had the support of the ruling party and the Opposition, except the
Swatantra Party, the Jana Sangh and an Independents. One leftist leader, while
supporting the Bill, pointed out that the changes because it sought to restore merely the
49
Supranote 45 p. 602.
Chapter IV Land Acquisition and Compensation | 69
status quo ante even after twenty-five years. It was pointed out that the right to property
still remained a fundamental right and was not basically, fundamentally changed. The
rightist opinion was uncompromisingly critical of the measure. Sri A. B. Vajpayee,
leader of the Jana Sangh, attacked the Government for its failure to implement the
Directive Principles through ineffective land reforms. Mr. Frank Anthony opined that
Art. 31 (c), however it is rationalised and explained, gives the power of expropriation
simpliciter. One D.M. K. member said the question really was one of implementation of
the Directive Principles and not of property. The Prime Minister, however, came
forward with the declaration that Parliament would not exercise arbitrary powers, and
that arbitrary legislation would always be open to judicial review. While proclaiming
that an impartial judiciary was indispensable for the rule of law, she echoed her father’s
sentiment by pointing out that “we will not allow the judiciary to take over the powers
of Parliament”50.
In fact, some sort of challenge was felt necessary in order that the whole issue could be
re-examined and re-assessed by the Supreme Court, and the controversies arising out of
the ‘Golaknath’ Judgment and the 24th, 25th amendments could be set rest once for all.
Such a challenge was made in Supreme Court through bunch of Writ Petitions in
Kesavananda v. State of Kerala51 . Kesavananda Bharathi challenged the Kerala Land
Reforms Act, 1969 by which land could be taken away without adequate compensation.
During the pendency of the Writ petition before the Supreme Court, the Act was
included in the IX Schedule of the Constitution. The 24th Amendment enacted to rearm
the parliament with the power-to amend the fundamental rights, a power which was
denied to parliament by “Golaknath” Judgment. The Supreme Court after a hearing of
66 working days, which is the longest in the history of the Court, judgment was
delivered on April, 24, 1973 just two days before Chief Justice Sikri laid down office.
While the Court declared the 24th and 29th Amendments to be valid; the majority held
that Sec. 2 (A) and 2 (B) of the 25th amendment valid. The first part of Sec. 3 of the
25th Amendment was also declared valid. But the 2nd part namely, the words ‘'no law
containing a declaration that it is for giving effect to such policy shall be called in
question in any court on the ground that it does not give effect to such policy” was held
to be unconstitutional and void.
The view of the majority in these writ petitions is as follows:
50
51
S.N. Ray, Judicial Review & Fundamental Rights (Calcutta, Eastern Law House 1974) 252 & 253.
AIR 1973 SC 1461.
Chapter IV Land Acquisition and Compensation | 70
i.
Golaknath’s case 52 is overruled.
ii.
Art. 368 does not enable Parliament to alter the basic or frame work of the
Constitution.
iii.
The Constitution (Twenty-fourth Amendment) Act, 1971, is valid.
iv.
Sec. 2(a) and 2(b) of the Constitution (Twenty fifth Amendment) Act, 1971 is
valid.
v.
The first part of Sec. 3 of the Constitution (Twenty-fifth amendment) Act, 1971,
is valid. The second part, namely, “and no law containing a declaration that is
for giving effect to such policy shall be called in question in any court on the
ground that it does not give effect to such policy” is invalid.
vi.
The Constitution (Twenty-ninth Amendment) Act, 1971, is valid.
The Constitution Bench will determine the validity of Twenty-sixth Amendment
Act, 1971 in accordance with law.
However, the Supreme Court Judges expressed divergent views on the interpretation of
the word “amount” for compensation.
The views expressed by the Judges are given below:
4.5.1 Extracts from Keshavanath’s Case
Per Sikri C. J.
The object of 25th Amendment is to modify the decision given by the Supreme Court in
Rustom Cavasjee Cooper v. Union of India,53where it was held by ten Judges that the
Banking Companies (Acquisition and Transfer of Undertakings) Act violated the
guarantee of compensation under Article 31 (2) in that it provided for giving certain
amounts determined according to principles which were not relevant in the determination of compensation of the undertaking of the named Banks and by the method
prescribed the amounts so declared could not be regarded as compensation?54.
It is very difficult to comprehend the exact meaning which can be ascribed to the word
“amount”. In this context, it is true that it is being used in lieu of compensation, but the
word “amount” is not a legal concept as “compensation’’ is. The figurative meaning of
“amount” given by Oxford English Dictionary, viz., the full value, cannot be given
because of the deliberate omission of the word “compensation” and substitution of the
52
AIR 1967 SC 1643.
(1970) 1 SCC 248.
54
AIR 1973 SC 1461: (1974) 4 SCC 225
53
Chapter IV Land Acquisition and Compensation | 71
word “amount” in lieu thereof55.
The article postulates that in some cases principles may be laid down for determining
the amount and these principles may lead to an adequate amount or an inadequate
amount. So this shows that the word “amount” here means something to be given in lieu
of the property to be acquired but this amount has to be worked out by laying down
certain principles. These principles must then have a reasonable relationship to the
property which is sought to be acquired. If this is so, the amount ultimately arrived at by
applying the principles must have some reasonable relationship with the property to be
acquired; otherwise the principles of the Act could hardly be principles within the
meaning of Article 31 (2)56.
The amount has to be fixed by law but the amount so fixed by law must also be fixed in
accordance with some principles because it could not have been intended that if the
amount is fixed by law, the legislature would fix the amount arbitrarily. So the amount,
if fixed by the legislature, has also to be fixed according to some principles. These
principles cannot be different from the principles which the legislature would lay
down57.
Per Shelat and Grover, JJ.
The obligation to act on some principle while fixing the amount arises both from Article
31 (2) and from the nature of the legislative power. For, there can be no power which
permits in a democratic system an arbitrary use of power. If an aggrieved owner
approaches the Court the norms or principles of fixing or determining the “amount” will
have to be disclosed to the Court. It will have to be satisfied that the “amount” has
reasonable relationship with the value of the property acquired or requisitioned and one
or more of the relevant principles have been applied and further that the “amount" is
neither illusory nor it has been fixed arbitrarily, nor at such a figure that it means virtual
deprivation of the right under Article 31 (2). The question of adequacy or inadequacy,
however, cannot be gone into58.
Per Hegde & Mukherjea, JJ.
The word “amount” is a natural word. Standing by itself, it has no norm and is
completely colourless. The dictionary meaning of the word appropriate to the present
context is "sum total or a figure”. We have to find out its connotation from the context.
55
(1974) 4 SCC Paras 400 to 403.
(1974) 4 SCC Para 404.
57
Ibid Para 405 and 406.
58
(1974) 4 SCC Para 591.
56
Chapter IV Land Acquisition and Compensation | 72
In so doing, we have to bear in mind the fact that Article 31 (2) still continues to be a
fundamental right59.
If we bear in mind the fact that the “amount” in question is to be paid in lieu of the
property taken, then it follows that it must have a reasonable relationship with the value
of the property taken. It may not be the market value of the property taken. The market
value of a property is the result of an inter-action of various forces. It may not have any
reasonable relationship with the investment made by its successive owners. It is
undoubtedly open to the State to appropriate to itself that part of the market value of a
property which is not the result of any contribution made by its owners. In this regard
the legislative judgment is entitled to great weight. However, so long as the basis
adopted for computing the value of the property is relevant to the acquisition in
question or the amount fixed can be justified on any such basis it is no more open to the
court to consider whether the amount fixed or to be determined is adequate. But it is
still open to the court to consider whether the “amount” in question has been arbitrarily
determined or whether the same is an illusory return for the property taken. It is also
open to the court to consider whether the principles laid down for the determination of
the amount are irrelevant for the acquisition or requisition in question therefore, the
amended Article 31 (2) is valid60.
Per Ray, J.
After the substitution of the neutral expression “amount” for “compensation” in Article
31 (2) by the Constitution (25th Amendment) Act, the Article still binds the legislature
to provide for giving to the owner a sum of money either in cash or otherwise. The
legislature may either lay down principles for the determination of the amount or may
itself fix the amount. It cannot be said that the legislature would be under the necessity
of providing a standard to measure an adequacy with reference to fixing the amount.
The Constitution does not allow, judicial review of a law on the ground of adequacy of
the amount and the manner as to how such amount is to be given otherwise than in
cash61.
The word “amount” in Article 31 (2) after the 25th Amendment is to be read in the
entire collection of words. In Art. 31 (2) the use of the word “amount” in conjunction
with payment in cash shows that a sum of money is being spoken of. Amount is a sum,
59
(1974) 4 SCC Para 700.
Ibid Para 707
61
(1974) 4 SCC Para 1019.
60
Chapter IV Land Acquisition and Compensation | 73
a quantity or amount of money, or, in other words, amount means a sum of money. In
fixing the amount or compensation the legislature is not required to set out in the law
the principles on which compensation had been fixed in the un-amended clause or the
amount is fixed in the amended clause62.
Just as the amount can be fixed on principles of social justice the principles for
determining the amount can be specified on the same consideration of social justice. No
reason for fixing amount would or need appear in the legislation. If any person
aggrieved by the amount fixed challenges, the Court can neither go into the question of
adequacy nor as to how the amount is fixed. If adequacy cannot be questioned any
attempt to find out as to why the particular amount is fixed or how that amount has been
fixed by law will be examining the adequacy which is forbidden as per the
constitutional mandate. If one alleges that the amount is illusory one will meet the
insurmountable constitutional prohibition that the adequacy or the alleged arbitrariness
of the amount fixed is not within the area of challenge in courts. The amount fixed is
not justiciable. The adequacy cannot be questioned. The correctness of the amount
cannot be challenged. The principles specified are not justiciable63.
Per Jaganmohan Reddy, J.
The Legislature,’[ even in cases where it fixes an amount for the acquisition or
requisition of a property, must be presumed to have fixed it on some basis, or applied
some criteria or principles to determine the amount so fixed, and, therefore, where the
law is challenged on the ground of arbitrariness, illusoriness or of having been based on
irrelevant principles or any other ground that may be open to challenge by an
expropriated owner, the State will have to meet the challenge, and the Court will have
to go into these questions. This will be so even in respect to the manner of payment64.
Notwithstanding this amendment, it is apparent that the expropriated owner still
continues to have ‘the fundamental right that his property will not be acquired save by
the authority of law and for a public purpose. These propositions have been admitted by
the learned Solicitor-General. The question whether an acquisition is for a public
purpose is justiciable, only the adequacy of the amount is not65 .
Per Palekar, J.
By substituting “compensation” by “amount” in Article 31 (2) all that the amendment
62
(1974) 4 SCC Para 1023 and 1024.
Ibid Para 1046 to 1048,
64
(1974) 4 SCC Para 1166.
65
.Supranote 61 Para 1168.
63
Chapter IV Land Acquisition and Compensation | 74
has done is to negative the interpretation put by this Court on the concept of
compensation66.
Per Khanna, J.
Whatever may be the connotation of the word “amount”, it would not affect the validity
of the amendment made in Article 31 (2). Another change made in Article 31 (2) is that
the law for the purpose of acquisition or requisition shall not be called in question on
the ground that the whole or any part of the “amount” fixed or determined for the
acquisition or requisition of the property is to be given otherwise than in cash. I have
not been able to find any infirmity in the above change made in Article 31 (2)67.
Per Mathew, J.
When property is acquired for implementing the directive principles under Article 39
(b) or 39 (c), there is no ethical obligation upon the State to pay the full market value.
No absolute principle of justice requires it. An adequate theory of social justice should
enable one to draw the line between justifiable and unjustifiable cases of confiscation68.
The whole purpose of the amendment was to exclude judicial review of the question
whether the “amount” fixed or the principle laid down by law is adequate or relevant69.
The fundamental Right to property is attenuated to a certain extent. But it is not wholly
taken away. The right that the property could be acquired only under a law fixing an
amount or the principles for determining it and for a public purpose would still remain.
This Court can strike down an amendment of the Constitution only on the ground that
the amendment was not made in the manner and form required by Article 368, or that
the amendment was made in violation of some express or implied limitation upon the
power of amendment.
A constitutional amendment which provides for the law fixing the ‘amount’ or the
principles for determining the amount instead of compensation or the principles for its
determination and which deprives the Court of the power of judicial review of the
question whether the amount or the principles fixed by law is adequate or are relevant,
cannot be adjudged bad on the ground of some invisible radiation from the concept that
the right to acquire, hold or dispose of property is a Fundamental Right. There is no
conceivable basis on which I can strike down the amendment to Article 31 (2)70.
66
(1974) 4 SCC Para 1319.
.Ibid Para 1513.
68
(1974) 4 SCC Paras 1736 and 1737.
69
.Ibid Para 1747.
70
(1974) 4 SCC Paras 1759 and 1761.
67
Chapter IV Land Acquisition and Compensation | 75
Per Beg, J.
On Amendment of Article 31(2), I agree with Ray, Mathew and Dwivedi, JJ.71
Per Dwivedi, J.
Unlike ‘compensation’ the work ‘amount’ is not a term of art. It bears no specific legal
meaning. The amount fixed by law or determined in accordance with the principles
specified by law may be paid partly in cash and partly in kind. The notice of ‘the
relevancy of principles to compensation’ is discarded by Section 2 of the 25th
Amendment. Obviously, where the law fixes the amount, it cannot be questioned in any
court on the ground that it is not adequate, that is, not equal to the value of the property
acquired or requisitioned. The legislative choice is conclusive. It would accordingly
follow that the amount determined by the principles specified in the law is equally
unquestionable in courts. It is not permissible to import in the amended Article 31 (2)
the notions of ‘arbitrary amount’ or ‘illusory amount’ or ‘fraudulent amount’. As some
amount must be paid the law may be virtually confiscatory, but not literally
confiscatory. It is not permissible to import the notion of reasonableness in Article 31
(2) as amended by Section 272.
The value of the property acquired or requisitioned, the nature of the property acquired
or requisitioned, the circumstances in which the property is being acquired or
requisitioned and the object of acquisition or requisition will be the guiding principles
for legislative determination of amount. The second principle may involve, inter alia,
consideration of the income already received by the owner of the property and the
social contribution to the value of the property by way of public loans at lower rates of
interest, cheap State supply of energy and raw materials, subsidies and various kinds of
protection, etc. It should be remembered that the value of a property is the resultant of
the owner’s industry and social contribution. The owner ought not to receive any
amount for the value contributed by society. He is entitled to payment for his own
contributions. The third principle will include the element of social justice73.
Per Chandrachud, J.
The substitution of the neutral expression “amount” for “compensation” still binds the
Legislature to give to the owner a sum of money in cash or otherwise. The Legislature
may either lay down principles for the determination of the amount or may itself fix the
71
(1974) 4 SCC Para 1856.
Ibid. Paras 1970 and 1971.
73
(1974) 4 SCC Para 1972.
72.
Chapter IV Land Acquisition and Compensation | 76
amount. There is, however, intrinsic evidence in Article 31 (2) that it does not empower
the State to confiscate or expropriate property. The obligation to pay an “amount” does
not connote the power not to pay any amount at all. The alternative obligation to evolve
principles for determining the amount also shows that there is no choice not to pay. The
choice open to the Legislature is that the amount may directly be fixed by and under the
law itself or alternatively the law may fix principles in accordance with which the
amount will be determined. The amount may, of course, be paid in cash or otherwise.
The specific obligation to pay an “amount” and in the alternative the use of the word
“principles” for determination of that amount must mean that the amount fixed or
determined to be paid cannot be illusory. But this is subject to an important,
qualification. The amount fixed for being paid to the owner is wholly beyond the
challenge that it is inadequate74.
With these findings it is very difficult to answer whether the court can go into the
question whether the “amount” fixed is illusory. One thing is clear that the meaning
given to the word '‘compensation”, on adequacy of compensation and on relevant
principles in Coopers case was held to have been nullified by the 25th Amendment of
the Constitution. The question still remains that in view of the fact that Art. 31 (2)
confers a fundamental right, a challenge with respect to adequacy of the amount is
completely excluded? The fixation or determination of the amount under Art. 31 (2) has
to be based on some norms or principles which just be relevant for the purpose of
arriving at the amount payable with respect to the property acquired or requisitioned.
The amount can neither be illusory nor nominal. Further, though the courts are debarred
from examining the adequacy of the amount yet the relevancy of the norms for fixing
the amount, reasonableness or the arbitrariness of the amount, or whether it is illusory
or nominal can still be subjected to judicial review. If the principles laid down for fixing
the amount are based on irrational classification and arbitrary it can still be questioned
under Art. 14 of the Constitution of India.
4.6 The Land Acquisition and Compensation
4.6.1 The Land Acquisition Act 1894 & Compensation
The power of the sovereign to take private property for public use and the consequent
rights of the owner to compensation are well established. In justification of the power,
two maxims are often cited Salus Populi est Supreme lex (regard for the public welfare
74
Supranote 73, Paras 2121 to 2123.
Chapter IV Land Acquisition and Compensation | 77
is the highest law) and Necessities Public a major est quam Privata (Public necessity is
greater than private necessity).
The Land Acquisition Act, 1894 provides for the acquisition of land for a public
purpose, and also for Companies. The Land Acquisition Act was an existing law when
the Government of India Act 1935 was enacted and also when the Constitution came
into force, and so, the provisions of the Land Acquisition Act were protected under the
umbrella of Article 31 (5) (a). The effect of Art. 31 (5) (a) is that, if any law provided
for the acquisition and requisition of property without a public purpose, or did not
provide for payment of compensation, such a law if validly enacted, would not be open
to challenge on the a ground that it violated Art. 31 (2). Similarly S. 299 (41 of the
Government, of India Act provides that nothing containing in that section was to affect
existing laws. Sec. 6 of the Land Acquisition Act, 1894 provides that a declaration by
Govt., that the land is required for public purpose or for a Company shall be a
conclusive evidence that it is required for such purpose or for a Company75. Unless it is
shown that there was colourable exercise of power, the Court cannot go behind the
declaration of the Govt., and find out in a particular case whether the purpose for which
the land was a public purpose or not76 . The result therefore is that although public
purpose is justiciable. Sec. 6 being part of an existing law, is protected from challenging
under Art. 31 (2) and is valid. This protection was not available to the subsequent
amendments made to the Land Acquisition Act.
In Vishnu Prasad Sarma v. State of M.P. 77 under the Land Acquisition Act, the State
had issued Sec. 4 notification in May, 1949, covering a substantial area. Some land was
acquired in the year 1956 and for some land the Govt. issued Sec. 6 declarations in the
year 1960. At that stage the land-holders approached the Madhya Pradesh High Court
questioning the validity of Sec. 6 declarations. The High Court observed at page 272:
“The result is inevitable that once an area in the locality is fixed to be acquired
and notified under Sec. 6 of the Act, all the efficacy of the notification under Sec. 4 in
pursuance of which the area becomes fixed, comes to an end and it becomes a dead
letter. Any proposal for further acquisition in the same locality would have to be
followed by a fresh notification under Sec. 4.”
75
Smt. Somawanti v State of Punjab AIR 1963 SC 151.
Jage Ram v State of Haryana AIR 1971 SC 1035
77
AIR 1962 MP 270.
76
Chapter IV Land Acquisition and Compensation | 78
On appeal to the Supreme Court in State of M. P. v. Vishnu Prasad Sarma78the decision
of the High Court was upheld. It was observed by Justice Wanchoo79 ;
“There is nothing in Sec. 4, 5A and 6 to suggest that Sec. 4 (1)
is a kind of reservoir from which the Govt., may from time to time
draw out land, make declarations with respect to it successively. If
that was the intention behind Secs. 4, 5A, 6 we would have-found
some indication of it in the language used therein. When once a
declaration under Sec. 6 particularising the area out of the area in the
locality specified in the notification under Sec. 4 (1) is issued, the
remaining non-particularized area stands automatically released”.
Consequent on the decision of Vishnu Prasad Sarma’s case the Land Acquisition
(Amendment and Validation) Ordinance I of 1967 was promulgated on 20-1-1967. This
was followed by an Act of Parliament, Land Acquisition (Amendment and Validation)
Act, 1967. The amendment validated earlier acquisitions retrospectively by providing
that the new terms should be deemed always to have in effect, but allowed the payment
of 6 per cent simple interest when there had been a delay of more than 3 years, the
interest to be payable for any period that elapsed after the three years.
In Udia Ram Sarma v. Union of India80 the Supreme Court upheld the 1967
Amendment to the Land Acquisition Act. The contentions of the petitioners that
different owners would be treated differently, and some would be deprived of
substantial increments in value as the years had gone by were negative. Mitter J. who
delivered the judgment of the majority observed at para 32:
“The date of valuations is that of the issue of notification under Sec. 4 (1) the
principle which has held the field since 1923. It is true that the underlying principle of
the Land Acquisition Act, 1894 was that all increments due to the setting foot of the
acquisition proceedings were to be ignored, whereas due to the ever spiraling of all
prices all over India land values are mounting up all the time in all the States, an
occurrence quite unconnected with the issue of a notification under Sec. 4 (1), but it
cannot be said that because the owners of land are to be deprived of all the increments
due to the latter phenomenon it must be held that there is a violation of Art. 31 (2) read
with sec. 4 and 23 of the Land Acquisition Act are protected by Art. 31 (5) (a) of the
78
AIR 1966 SC 1593.
Ibid at page 1600.
80
AIR 1968 SC 1138 & 1154.
79
Chapter IV Land Acquisition and Compensation | 79
Constitution. Only Sections 5 A and 6 of the Act have been amended. The amendments
do not alter the principle of compensation fixed by the Act nor contravene Art. 31 of the
Constitution in any way”.
Due to delay in payment and uncertainty in valuation increases unrest and compelled to
think about major change in law as a result, The Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
4.6.2 The Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013& Compensation
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation
and Resettlement Act 2013, enacted by Parliament to provide just and fair
compensation to those whose land is taken away for constructing roads, buildings or
factories, had come into force from January 1, replacing the 120-year-old legislation,
after a thorough perusal of The Right to Fair Compensation and transparency in land
Acquisition, rehabilitation and Resettlement Act, 2013, on compensation and valuation
of property there is detailed provision to ensure justice and fair calculations as
following:
4.6.2.1 Determination of Market Value of Land by Collector
As per Section 26(1) the collector shall adopt the following criteria in assessing and
determining the market value of the land namelyi.
As specified in The Indian Stamp Act, 1899 for the registration of the sale deeds
or agreement to sell of particular area.
ii.
Average sale price for similar type of land situated in the nearest village.
iii.
Consented amount of compensation as agreed upon under sub. sec. (2) of sec. 2
in case of acquisition of lands for private companies or for the public-private
partnership projects.
Whichever is higher provided date of determination of market value shall be the date on
which notification has been issued. Further four explanations are there, according to
first explanation, the average sale price shall be determined taking into account, the sale
deeds or the agreements to sell registered for similar type of area in the near village of
near vicinity area during immediately preceding three year of the year in which such
acquisition of land is proposed to be made. Second explanation is, for determining the
average sale price referred to in explanation-1, one half of the total number of sale
deeds or the agreement to sell shall be taken into account. Third explanation is, while
determining the market value under section 26 and the average sale price referred in
Chapter IV Land Acquisition and Compensation | 80
exp.1 and exp.2, any price paid as compensation for land acquired under the provisions
of this Act or an earlier occasions in the district shall be taken into consideration. As per
explanation four, while determining the market value under section 26 and the average
sale price referred to in exp. 1 or exp. 2 any price paid, which in the opinion of the
collector is not indicative of actual prevailing market value may be discounted for the
purpose of calculating market value81. The market as calculated under Section 26 (1)
shall be multiplied by a factor to be specified in the first schedule82.
Where the market value under sub. Sec. (1) & (2)83 cannot be determined for reason,
land is situated in such an area where the transaction in land are restricted by or under
any law for the time being in force in that area; or the registered sale deed or agreement
to sell as mentioned in clause (a) of sub. Sec. (1) for similar land are not available for
immediately preceding three years; or the market value has not been specified under the
Indian Stamp Act, 1899 by the appropriate authority84.
The state Govt. concerned shall specify the floor price or minimum per unit area of the
said land based on the price calculated in the manner specified in sub. Sec. (1) of
Sec.2685 in respect of similar adjoining areas provided that in a case where the requiring
body offers its shares to the owners of the land.
Where lands have been acquired as a part compensation for acquisition of land such
shares in no case shall exceed 25% of the value so calculated under sub sec. (1) Sub
Sec. (2) or sub. Sec. (3) as the case may be86.
As per the proviso of sub sec.(3) where land has been acquired, land owner shall not be
compelled by requiring body to take his share, the value of which is deductible in the
value of the land calculated under sub sec. (1)87. Also collector shall before initiation of
any land acquisition proceeding in any area, take all necessary steps to revise and
upload the market value of the land on the basis of the prevalent market value in that
area. The appropriate Govt. shall ensure that, the market value determined for
acquisition of any land or property of an educational institution established and
administered by a religious or linguistic minority shall be such as would not restrict or
81
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and
Resettlement Act, 2013
82
Sec 26 (2), The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and
Resettlement Act, 2013
83
Ibid. Sec.26,
84
Ibid. Sec.26 (3)
85
Ibid.
86
Ibid.
87
Ibid.
Chapter IV Land Acquisition and Compensation | 81
derogate the right to establish and administer educational institution of their choice88.
4.6.2.2 Determination of Amount of Compensation
The collector having determined the market value of land to the acquired, shall
calculate the total amount of compensation to be paid to the land owner (where land has
been acquired) by including all assets attached to the land89.
4.6.2.3 Parameters to be considered by Collector in Determination of Award
According to sec. 28, in determining the amount of compensation to be awarded for
land acquired under ‘The Right to Fair Compensation and transparency in land
Acquisition, rehabilitation and Resettlement Act, 2013, the collector shall take into
consideration;
i.
Firstly, the market value as determined under sec. 26 and the award amount in
accordance with the first and second schedules;
ii.
Secondly, the damage sustained by the person interested by reason of the taking
of any standing crop and trees which may be as the land at the time of the
collector’s taking possession thereof;
iii.
Thirdly, the damage (if any) sustained by the person inserted, at the time of the
collector’s taking possession of the land, by reason of severing such land from
his other land;
iv.
Fourthly, the damage (if any) sustained by the person interested, at the time of
collector’s taking possession of the land by reason of the acquisition injuriously
affecting his other property movable or immovable, in any other manner or his
earnings;
v.
Fifthly, in consequence of the acquisition of the land by the collector, the
person, interested is compelled to change his residence or place of business, the
reasonable expense (if any) incidental to such charge;
vi.
Sixthly, the damage (if any) bonafide resulting from diminution of the profit of
the land between the time of the publication of the declaration under sec. 19 and
the time of the collector’s taking possession of the land; and
vii.
Seventhly, any other ground which may be in the interest of equity, justice and
beneficial to the affected families.
These parameters make the law of compensation more humane.
88
Supranote 84.
Sec. 27, The Right to Fair Compensation and transparency in land Acquisition, rehabilitation and
Resettlement Act, 2013.
89
Chapter IV Land Acquisition and Compensation | 82
4.6.2.4 Determination of Value of Thing Attached to Land Building
The collector in determining the market value of the building and other immovable
property or assets attached to the land or building which are to be acquired, use the
services of a competent engineers or any other specialist in the relevant field, as may be
considered necessary by him90. The collector for the purposes of determining the value
of trees and plants attached to the land acquired, use the services of experienced persons
in the field of agriculture, forestry, horticulture, sericulture or any other field, as may be
considered necessary by him91. The collector for the purpose of assessing the value of
the standing crops damaged during the process of land acquisition, may use the services
of experienced person in the field of agriculture as may be considered necessary by
him92.
4.6.2.5 Award of Solatium
The collector having determined the total compensation to be paid, shall to arrive at the
final award, impose a “solatium” amount equivalent to one hundred percent of the
compensation amount93. For the removal of doubts it is hereby declared that solatium
amount shall be in addition to the compensation payable to any specified in First
Schedule94.
In addition to the market value of the land provided under sec 26, the collector shall, in
every case, award an amount calculated at the rate of 12% per annum on such market
value for the period commencing on and from the date of the publication of the
notification of the Social Impact Assessment study under sub sec. (2) of Sec. 4 in
respect of such land till the date of award of the collector or the date of taking
possession of the land, whichever is earlier.
4.6.2.6 Period of Award
According to sec.24(2), in case of land acquisition initiated under the Land Acquisition
Act, where an Award under the said Section 11 has been made five years or more prior
to the commencement of this Act but the physical possession of the land has not been
taken or the compensation has not been paid the said proceedings shall be deemed to
have lapsed and the appropriate government, if it so chooses, shall initiate the
90
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and
Resettlement Act, 2013sec 29(1).
91
Ibid. sec 29(2).
92
Ibid sec 29(3).
93
Sec. 29, The Right to Fair Compensation and transparency in land Acquisition, Rehabilitation and
Resettlement Act, 2013.
94
Ibid.
Chapter IV Land Acquisition and Compensation | 83
proceedings of such land acquisition afresh in accordance with the provisions of this
Act. Provided that whether an award has been made and compensation in respect of a
majority of land holdings has not been deposited in the account of the beneficiaries
specified in the notifications for acquisition under Section 4 of the said land acquisition
and shall be entitled to compensation in accordance with the provisions of this Act.
The above said provision of, The Right to Fair Compensation and Transparency in Land
Acquisition, Rehabilitation and Resettlement Act, 2013 quoted above has been
interpreted by the three Judge Bench of this Court in the case of Pune Municipal
Corporation and Anr. v Harakchand Misirimal Solanki & Ors95, the relevant paras 20
and 21 from the case are extracted hereunder;
“It is clear that the award pertaining to the subject land has been made by
the Special Land Acquisition Officer more than five years prior to the
commencement of the 2013 Act. It is also admitted position that
compensation so awarded has neither been paid to the landowners/persons
interested nor deposited in the court. The deposit of compensation amount
in the Government treasury is of no avail and cannot be held to be
equivalent to compensation paid to the landowners/persons interested. We
have, therefore, no hesitation in holding that the subject, land acquisition
proceedings shall be deemed to have lapsed under Section 24(2) of, The
Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013.”
Same was upheld in Union of India & others v. Shiv Raj & others96, Bimla Devi &
Others v. State of Haryana & Others97, Bharat Kumar v. State of Haryana &
Another98 and Sree Balaji Nagar Residential Association v. State of Tamil Nadu
& others99
4.6.3 Problems of Valuation
The broad object underlying the principle of valuation is to award to the owner the
equivalent of his property with its existing advantages and its potentialities. Where
there is an established market for the property acquired the problem of valuation
presents little difficulty. Where there is no established market for the property, the
95
(2014) 3 SCC 183
(2014) 6 SCC 564.
97
(2014) 6 SCC 583.
98
(2014) 6 SCC 586.
99
2014 (10) SCALE 388.
96
Chapter IV Land Acquisition and Compensation | 84
object of the principle of valuation must be to pay to the owner for what he has lost,
including the benefits of advantageous present as well as in future, without taking into
account the urgency of acquisition, the disinclination of the owner to part with the
property, and the benefit which the acquirer is likely to obtain by the acquisition100.
The problem of valuation is the determination of present market value in relation to
lands and buildings, Market value means, the price at which a property can be expected
to sell as between a willing vendor and a willing purchaser both of whom are fully
informed regarding the property in question, who are neither forced to buy nor to sell
and who are free to deal elsewhere if they choose.
“The important methods of determination of compensation are;(i) market value
determined from sales of comparable properties, proximate in time to the date of
acquisition, similarly situate, and possessing the same or similar advantages and subject
to the same or similar disadvantages. Market value is the price of the property may
fetch in the open market if sold by a willing seller unaffected by the special needs of a
particular purchase; (ii) capitalization of the net annual profit out of the property at a
rate equal in normal cases to the return from gilt-edged securities. Ordinarily value of
the property may be determined by capitalizing the net annual value obtainable in the
market at the date of the notice of acquisition, (iii) where the property is a house,
expenditure likely to be incurred for constructing a similar house and reduced by the
depreciation for the number of years since it was constructed; (iv) principle of reinstatement, where it is satisfactorily established that reinstatement in some other place is
bona fide intended, there being no general market for the property for the purpose for
which, it is devoted (the purpose being a public purpose) and would have continued to
be devoted, but for compulsory acquisition. Here compensation will be assessed on the
basis of reasonable cost of reinstatement, (v) when the property has out-grown its utility
and it is reasonably incapable of economic use, it may be valued as land plus the breakup value of the structure. But the fact that the acquirer does not intend to use the
property for which it is used at the time of acquisition and desires to demolish it or use
it for other purpose is irrelevant; and (vi) the property to be acquired has ordinarily to
be valued as a unit. Normally an aggregate of the value of different components will not
be the value of the unit. There are, however, not the only methods. The method of
determining the value of property by the application of an appropriate multiplier to the
100
Nagpur Improvement Trust v Vithal Rao AIR 1973 SC 609.
Chapter IV Land Acquisition and Compensation | 85
net annual income or profit is a satisfactory method of valuation of lands with
buildings, only if the land is fully developed, i.e., it has been put to full use legally
permissible and economically justifiable, and the income out of the property is the
normal commercial and not a controlled return or a return depreciated on account of
special circumstances. If the property is not fully developed, or the return is not
commercial the method may yield a misleading result101 .
Are compensation provisions adequate?
Since much of the disgruntlement seems to stem from perceptions of inadequate
compensation as much as from abuse of process, the story about compensation, initiated
in the late 19th century law, is far from over either.
In KT Plantation’s case, the Supreme Court recently read compensation’ into the
requirements of law under Article 300A of the Constitution. Compensation, in previous
decisions, has been held to be ‘just equivalent of what the owner has been deprived of’
(Bela Banerjee’s case102), ‘something not illusory’ (Shantilal Mangaldas103 case). Yet,
the same Supreme Court has also held in Bhim Singh’s case, that Rs. 2 lacs was
adequate, whatever was the value of the property104.
In the recent case of Rajiv Sarin v. State of Uttarakhand105, the Supreme Court held that
‘as mandated by Article 300 A, a person can be deprived of property but in a just, fair
and reasonable manner, where the State exercises the power of acquisition of a private
property thereby depriving the private persons of that property, provision is generally
made in the statute to pay compensation to be fixed or determined according to criteria
laid down in the statute itself, the adequacy of compensation cannot be questioned in a
court of law, but at the same time the compensation cannot be illusory, the criteria to
determine possible income on the date of vesting would be to ascertain such
compensation paid to similarly situated owners of neighbouring [forests] on the date of
vesting106.
In the latest Noida Extension case where dissatisfied farmers appear ready to approach
the Supreme Court. These farmers have reported that the 64% hike in compensation as
per the Allahabad High Court is inadequate and that they are entitled to the prevailing
101
R.C.Cooper v UOI AIR 1970 SC 609-610.
AIR 1954 SC 170.
103
AIR 1969 SC 634.
104
State of Gujarat v Shri Shantilal Mangaldas and Others AIR 1969 SC 634.
105
(2011) 8 SCC 708.
106
Ibid.
102
Chapter IV Land Acquisition and Compensation | 86
circle rate of Rs. 18,000 per square metre107. In such a scenario, The Right to Fair
Compensation and Transparency in Land Acquisition, Rehabilitation, Resettlement Act,
2013, being the governing statute when passed, needs to provide much need clarity on
the criteria for compensation. (R&R details being already provided in the Schedules).
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation,
Resettlement Act, 2013, computes market value on the basis of the documentation
available with the official records. It is expected that such official value will underrepresent the real value of the land, since stamp duty payments are high. According to
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation,
Resettlement Act, 2013, the market value is the higher of average sale price of
surrounding lands for the past 3 yrs or the price mentioned in the Stamp Act for
registration of sale deeds. This value is then to be multiplied by a factor of 2 in rural
areas and by 1 in urban, plus an amount of 100% more added as solatium. It is yet
unclear why the ratio of 2:1 was chosen, if such questions are essentially those of
relative economic value, determined by the manner the market operates. This ratio
seems to also simultaneously incentivize the transformation of rural areas (with better
compensation prices) into the urban, while keeping open the political and institutional
avenues for receipt of entitlements specified, and then even perhaps enabling the
continued retention of the hitherto rural character of the land if acquisitions are
subsequently nullified for abuse of law or process.
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation,
Resettlement Act, 2013 relies on a retrospective price, based on previous and not future
use. This approach seems to raise questions on price and not value, if the price to be
paid as compensation does not reflect the changed use of the land. There are examples
of recent State Acts which examine whether more can be done, the new Kerala
enactment did initially discuss Redeemable Infrastructure Bonds/Transferable
Development bonds instead of cash; Rajasthan’s new Bill explored the possibility of
providing 25% of developed land in lieu of cash for urban development and housing
purposes; Gujarat follows a TP Scheme model where the losses are spread across the
area; in Maharashtra, there have also been instances of the community organizing
themselves to form a corporation, where farmers pooled their lands and each farmer
India Today, ‘UP Land Row: Noida Farmers to move SC’ <http://indiatoday.intoday.in/story/g.-noidaland-row-allahabad-hc-order-supremecourt/1/157520.html> accessed on 15th September, 2014.
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became a shareholder of the company in proportion to the value of the respective land
vis a vis the cost of the total land108. It is this spirit of partnership, as enshrined in The
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation,
Resettlement Act, 2013, preamble, that The Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation, Resettlement Act, 2013, may do
more to provide, without which other distributive suggestions are inadequate. One way
of ensuring such partnership is through incentives in the actual benefits of the land
acquired for newer and more productive uses. This is what makes opportunity costs
come alive. This shifts the political stakes from a purely entitlement driven model for
the dispossessed to one that also talks about stake holders and partners of development.
If the farmers foresee a possible rise on incomes from selling off their lands, they will,
if the prospect of getting a share of the proceeds of future use holds promise compared
to existing returns from the land. ‘Impatient capital’, in a difficult economic
environment, which will look for a one-time settlement of dues and not seek to engage
in a protracted continuum of negotiations with affected parties. Livelihood options are
another issue altogether, dependant on the availability of requisite skills and general
employability, of particular relevance also here are comparisons with adjoining areas,
the gains that are made by those who do not lose land but actually benefit from the
rising value of land through acquisitions in such areas. The Right to Fair Compensation
and Transparency in Land Acquisition, Rehabilitation, Resettlement Act, 2013 does
provide particularly that ‘where the land is acquired for urbanization purposes, twenty
per cent of the developed land will be reserved and offered to land owning project
affected families, in proportion to the area of their land acquired and at a price equal to
cost of acquisition and the cost of development. How does one take care of potential
value in commonsense terms, the price paid by a willing purchaser to a willing seller
after taking into account the existing and potential possibility of the land? In its
absence, it is likely that the usual arguments about computation will continue lack of
land titles, under-valuation of land for stamp duty purposes, information asymmetry,
delays pushing cost of land up; lack of speedy implementation and so on. In R&R, the
responsibility of the State (and private companies) will be particularly tested. Will
implementation of R&R as a precondition be effectively implemented? Is there enough
108
The Indian Express, http://www.indianexpress.com/news/magarpatta-building-a-city-with-ruralurbanpartnership/623701/1; accessed on 15th September, 2014.
Chapter IV Land Acquisition and Compensation | 88
land for R&R, especially to implement the 20% land for land provision? Where the land
market is beset with large information and other asymmetries, questions are rife as to
whether the State can indeed effectively manage compensation and fair payment of
market value.
The immediate question stemming from the compensation and market value approaches
is where will the new urbanisation take place? Will there be an increasing number of
greenfield sites (whether under The Right to Fair Compensation and Transparency in
Land Acquisition, Rehabilitation, Resettlement Act, 2013 or as SEZs or under possibly
diluted requirements of townships) or are we going to continue to see urbanisation as
increasing peripheral development, incrementally across the blurred rural-urban/ periurban boundaries?
While discussing about relevant principles of compensation Seervai commented109:
“Relevant to what? If compensation means the market value, then relevant
principles of compensation mean general rules whose application enables us to
determine the market value, and irrelevant principles mean principles whose
application does not enable us to determine the market value. For example, if in the
open market, the potentiality of agricultural land as a building site in the near future is
taken into account, and a higher price paid for such land than would be paid for
agricultural land without such potentiality, then a rule (principle) which excluded' the
potential value of land would be irrelevant, for its application would not enable us to
determine the market value. On the other hand, where land is acquired, and there is
evidence of the prices realized by the sales of comparable lands at or about the time of
acquisition, the principle that ordinarily such sales provide the best evidence of the
market value is relevant, because its application enables us to determine the market
value. But if it is established that the prices mentioned in the sale deeds of the lands in
question were substantially less in order to avoid liability for income-tax and wealth
tax, and that in addition to the specified price, an unknown amount of black market
money passed from the purchaser to the seller, the principle of referring to such sales
would be irrelevant because it does not enable us to arrive at the market value”.
4.7 Conclusion
This chapter is mainly focused on compensation and its protection under Indian
Constitution, judicial approach and development of concept of compensation, relevant
109
H.M Seervai, Constitutional Law of India: A Critical Commentary, (2nd Edn, N.Delhi, Universal Law
Publication2010)656.
Chapter IV Land Acquisition and Compensation | 89
principles of compensation mean general rules whose application enables us to
determine the market value. The problem of valuation is the determination of present
market value in relation to lands and buildings. The tops-turvy journey of Indian
Supreme Court has been swaying in between the idea of ‘Social Justice’, ‘Distributive
Justice’, land reforms and Zamindari abolition by compensatory acquisition of land. But
in doing so the achievement of Indian Supreme Court has that one size fit all type of
computation formula for calculation of compensation cannot be applied to each and
every case. The Judiciary has discussed all pros and cons of various types of valuation
method. However due to variety of properties and allied attachments one type cannot be
applied to each case uniformly.